5 retirement planning mistakes and how to avoid them
The generation that has begun entering retirement is known as the “baby boomers”. They were born between 1946 and 1964 and were raised during the biggest, most sustained, economic boom in human history. Right now, approximately 10,000 boomers are retiring every day.
Unfortunately, planning for retirement has not been kind to the as studies are showing some scary statistics.
- 1 in 10 Baby Boomers have enough saved for retirement-Insured Retirement Institute (IRI)
- 45% of boomers have less than $25,000 saved-2018 Retirement Confidence Survey by the Employee Benefit Research Institute.
- 43% plan to work past age 70, or do not plan to retire-TransAmerica Center for Retirement Studies
- Of the boomers who reported positive savings, the median amount was $209,246-Stanford Center on Longevity
These studies are showing us that there is a disconnect between workers and preparing for retirement. Let’s look at some of the mistakes that have been made and how we can avoid them.
Mistake #1- Not saving enough, or anything
According to the IRI 23% of boomers have no retirement savings and never did.
Saving money is the hardest part of retirement planning and it also the most important. Find a way to sit down and figure out an amount that you can save each month. Aim to save between 10-15% of your monthly income. If you find that you cannot reach your savings goals, then you must look at your expenses and figure out where you can cut back.
Mistake #2-Draining your retirement savings
17% did at one time save for retirement but, for one reason or another have since diminished their savings.
We understand that emergencies happen and sometimes you have no choice. Try to have an emergency fund established that can cover events like this without tapping into your retirement accounts. Also, avoid using retirement savings to pay for education for your kids and instead look into 529 plans or student loans. Your kids have a longer time horizon to make up the debt, you do not.
Mistake #3-Not figuring out a savings goal
It’s hard to plan for retirement when you have not established a specific goal to reach. Only 25% of Baby boomers say they have sat down and “ran the numbers”.
Whether you do it on your own or with a financial advisor you need to sit down and look at the numbers. Ask yourself the following, how much do you need in retirement? When do you want to retire? How much do you currently have saved? How much can you start saving now? How will you grow your savings? Once you start answering these questions you will begin seeing clearly what needs to be done.
Mistake #4- Getting scared out of the market
One of the key reasons Boomers lack funds is the stock market decline of 2008 to 2009. Many older boomers were scared out of the markets, causing them to miss the subsequent rebound and longest bull market in history. The following seven years of low interest rates drastically undermined the yields of bond funds that savers and retirees were urged to purchase. These yields, in turn, were invested in capital that earned virtually no interest. With wages plateauing, it was difficult for most workers to ramp up savings in their final earning years.
With return comes risk and the stock market will have its ups and downs. The key is to invest for the long-term and avoid panic selling when things look bad. We have written plenty about the dangers of timing the market and have encouraged our clients that it is all about time IN the market. Having a financial plan coupled with investments suited to your goals can help put your mind at ease when things look bleak.
Mistake #5- Relying too much on Social Security
In 1985, retirees could expect Social Security to cover most of their income in retirement. Due to the rise in cost of living, Social Security today will hardly get you above poverty levels.
Social Security, while important, should only be a part of your overall plan. Any pensions or retirement savings accounts should be used to fill the gap that your benefits do no cover. If you do not have enough saved to replace the income needed you need to consider working part time in retirement.
We can all learn from these mistakes whether you are in retirement, approaching it, or even brand new to the workforce. Its never too late or too early to start planning for the retirement that you deserve. Call us today or use the speak to an advisor tab and schedule a complimentary consultation.